What Is Surplus Lines Insurance and What It Means For You

When it comes to insurance, most people are familiar with standard policies offered by insurance carriers. However, in some cases, traditional insurance companies may not provide coverage for unique or high-risk situations. This is where surplus lines insurance comes in.

If you have been told you need a surplus lines policy, you may be wondering what that means, how it works, and how it affects you. Let's break it down.

What Is Surplus Lines Insurance?

Surplus lines insurance is a type of coverage provided by non-admitted insurers (insurance companies that are not licensed in a particular state but are legally allowed to operate under special regulations). These policies exist to cover high-risk or unusual situations that standard insures won't provide coverage for.

Even though surplus lines insurers are not regulated in the same way as admitted carriers, they still follow strict financial standards and are often backed by highly rated companies.

When Is Surplus Lines Insurance Needed?

You may need a surplus policy if your risk is considered too high or too unique for standard carriers. Common scenarios can include:

1. High-Risk Properties

• Homes in hurricane-prone areas, wildfire zones, or floodplains

• Vacant or abandoned properties

• Homes with previous major claims

2. Unusual Businesses or Professions

• Amusement parks and extreme sports facilities

• Cannabis businesses (where legal)

• High-risk construction projects

3. Specialty Liability Coverage

• Celebrity or athlete insurance

• Professional indemnity for high-risk careers

• Events with high liability exposure (concerts, large festivals)

4. Unique or Expensive Assets

• High-value art, collectibles, or classic cars

• Aircraft or yachts

• Exotic pets

If a standard insurer declines your application or offers limited coverage at a high price, a surplus lines policy might be your best alternative to provide you adequate coverage.

How Does Surplus Lines Insurance Work?

Unlike standard insurance policies, surplus lines coverage must be placed through a licensed surplus lines broker. This broker specializes in securing policies from non-admitted insurers and ensures compliance with state regulations.

Here’s how the process typically works:

1. A standard insurer declines coverage due to risk factors.

2. A surplus lines broker finds a non-admitted insurer willing to underwrite the policy.

3. The policy is issued, often with specialized terms and higher premiums due to increased risk.

Since surplus lines insurers are not state-regulated, so policyholders do not have access to state guarantee funds (financial safety nets designed to protect policyholders if the insurance carrier doesn't have enough money to pay your claim). However, most surplus carriers have strong financial backing to mitigate this risk.

So, What Does This Mean For You?

First, let's clarify, having an unusual or high-risk home does not automatically make you uninsurable, and being in the surplus lines market isn't necessarily a bad thing. While you may pay a bit more for coverage, surplus lines policies are often tailored to fit your specific needs, offering protection where standard insurers fall short. If you've had difficulty securing coverage and are offered a surplus lines policy, don't dismiss it right away as it could be the best solution for your situation.

Thinking you need a surplus policy? We're here to help. Give us a call today and our agents would be happy to review your options.

(207) 363-7894 | www.tapleyagency.com | 300 York St . PO Box 808 . York, Maine 03909